When the sole trader takes £1,000 from the business for personal use, which two accounts are affected?

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Study for the AAT Level 2 Introduction to Bookkeeping Test. Use flashcards and multiple choice questions with hints and explanations. Prepare effectively for your exam!

Multiple Choice

When the sole trader takes £1,000 from the business for personal use, which two accounts are affected?

Explanation:
When the sole trader takes cash for personal use, it’s treated as drawings. Drawings is a draw against the owner’s equity, so it increases to reflect the amount taken out. The cash account, an asset, decreases because cash is leaving the business. In double-entry terms, you debit Drawings and credit Cash for the amount taken. So the two accounts affected are Cash (decrease) and Drawings (increase). Why the other possibilities don’t fit: taking money out cannot cause cash to increase, and withdrawals do not increase capital; they reduce the owner’s equity.

When the sole trader takes cash for personal use, it’s treated as drawings. Drawings is a draw against the owner’s equity, so it increases to reflect the amount taken out. The cash account, an asset, decreases because cash is leaving the business. In double-entry terms, you debit Drawings and credit Cash for the amount taken.

So the two accounts affected are Cash (decrease) and Drawings (increase).

Why the other possibilities don’t fit: taking money out cannot cause cash to increase, and withdrawals do not increase capital; they reduce the owner’s equity.

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